Scottish Commission for Public Audit,

Meeting date: Wednesday, May 13, 2009

Official Report 135KB pdf

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Expenditure Proposals 2009-10 (Audit Scotland Response) and Budget Estimate 2010-11

Good morning, colleagues. I warmly welcome everybody to the Scottish Commission for Public Audit's first meeting in 2009. It is a few months since the commission last met.

We have no received apologies. Hugh Henry has been caught in the traffic problems that people have probably heard about on the radio, but he will join us when he can. I remind members and other colleagues to switch off mobile phones.

Agenda item 1 is evidence on Audit Scotland's response to the commission's report on its 2009-10 budget and correspondence about its provisional budget proposal for 2010-11. Before us again are Mr Robert Black and Audit Scotland representatives Diane McGiffen and Russell Frith. We welcome Barbara Hurst to the commission for the first time—we hope that we make the process painless for her.

I hope so.

I invite Mr Black to make an opening statement.

I appreciate the opportunity briefly to update members on the latest position on some of the issues that might arise this morning. The papers that the commission has provide a snapshot—all the issues that the commission is concerned about keep developing.

A lot of work has taken place in Audit Scotland before, during and after the period to which the papers relate. Since writing to the commission, we have published six impact reports on Audit Scotland studies on a range of topics.

The commission was concerned about end-year flexibility. We are not yet in a position to provide a precise figure on where we are—it is a bit early to do that—but we can say that EYF requirements will be down considerably this year. In the past two years, I have given the commission an undertaking to reduce progressively our reliance on EYF, and we are on track for a significant reduction.

On shared services, Diane McGiffen in particular has done a fair bit of work with colleagues in other agencies to check out whether our position chimes with their view of the world. Perhaps we could return at a later meeting to that issue, which is in hand.

The commission was concerned about the budget revision deadline. I confirm that, as our letter says, we are happy to reach agreement on that in any way that helps the commission.

When we last met, the commission asked about pay modernisation. That project is at an advanced but sensitive stage, as a series of proposals is just about to go to ballot. We would be happy to come back to the commission about that and to explain further where we are once we have a response from our staff.

Efficiency savings are—properly—a concern of the commission. I am confident that our annual report, which will be published in June, will describe fully the efficiency savings that are being delivered and, to an extent, our future targets. That will be reflected in our full budget submission in the autumn.

Questions were asked about legal and professional fees. Although we are still finalising the results for 2009-10, the early indications are that expenditure has levelled off at about the figure in the 2009-10 budget, as promised.

Thank you for your useful update. Will you say a bit more about the six impact reports?

I ask Diane McGiffen to advise the commission on those reports.

In the past year, we have finalised a framework for assessing the impact of our work. Last summer, we consulted our clients and stakeholders on the framework, which we have since implemented and now use to plan for the impacts that we want our work to have and to record the impacts that our work actually has.

The framework has four categories and is intended to capture information on the impact on assurance and accountability, economy and efficiency, planning and management, and quality and effectiveness. We have six reports that follow up work from previous years or the current year. After a study is published, we produce an impact report after three months and—depending on the initial impacts—after nine or 12 months. We have published impact reports, which are available on our website, on "Improving energy efficiency", "A performance overview of sport in Scotland", "Primary care out-of-hours services", "Review of palliative care services in Scotland" and "Managing long-term conditions". We have also published an initial impact report on "The First ScotRail passenger rail franchise".

That work is now built into our systems. We will be able to report in our annual report on the on-going impact of work that we have done in previous years, and we can now collect information and report back quickly on the initial response to our work so that we can consider whether it is having the intended impact, whether there are gaps, and whether things are progressing quickly enough. We can track all of that information much better. We have done a lot of work in the area and would be happy to share with the commission information that goes into as much detail as it would like on the background to it, the thinking about it and the consultation on it. We can provide examples of the reports if that helps.

Thank you very much.

Obviously, one element of your work is consistent year on year while another varies routinely. We are in a severe economic downturn and, as we look ahead, we expect a squeeze on, and perhaps significant real-term reductions in, overall public spending in Scotland—that is a political point that I do not expect you to comment on. The downturn will change the environment in which the bodies that Audit Scotland audits operate. How will the new circumstances change—if at all—the work that Audit Scotland has to do as an organisation and how it approaches its functions?

There are two aspects to the matter. First, we need to demonstrate a commitment to efficiency savings within Audit Scotland. Perhaps we can talk more about that when we present our annual report and the forward look in the autumn. We are seriously considering issues in that area. As the commission might have gathered, we have built in a 2 per cent efficiency target to reduce our resource needs for the next year—we are applying that to our budget.

Secondly, what I have said means that we need to think hard about the balance of our work in considering efficiency-related issues as opposed to performance-related issues. As Derek Brownlee correctly says, the situation is changing quite markedly. I look forward to a continuing dialogue with the Public Audit Committee on where we should deploy our resources, but we are not standing still. In the audits of all the public bodies with which we have a relationship, we are putting increasing emphasis on their approach to the use of resources. We are developing toolkits that we think we can use not only to support improvement but to challenge public bodies in the drive for improved efficiency. The early signs are that the use of the resources toolkits is going down quite well. They are part of a suite of toolkits that we are openly developing for auditing purposes with the audited bodies. We see that approach as offering significant potential for the future.

Much of the work that I have described is below the Parliament's radar because it involves our interaction with the audited bodies. Diane McGiffen has described our work on impacts. We need to find a way of explaining clearly at a higher level the extent to which the use of resources work is helping in audited bodies.

I understand your comments on the possible difficulties of quantifying some of the benefits that Audit Scotland brings. However, Audit Scotland's budget is top-sliced—although I admit that its budget is a very small slice compared with what is left—and the ability of auditing work to influence the effective use of the bit that is not top-sliced is crucial.

It seems to me that much more could be done to highlight the areas in which there is scope to drive better performance. That is not a criticism of Audit Scotland's work—indeed, most reports from Audit Scotland that I see are of a high standard—but in the new environment in which we will operate for probably the next decade or perhaps even longer, such benefits will become much more important to those of us who deal with day-to-day politics and to the people who run services. It would be helpful if Audit Scotland applied more effort on the focusing of resources to the extent that it can without prejudicing its broader aims.

I very much agree with that, and we are thinking seriously about how we can continue to modify our programme to reflect some of those issues. That opens up quite an agenda for discussion, and we might not have the time to go into it today, but I certainly look forward to engaging with the Public Audit Committee on it in future.

I will follow up on what Derek Brownlee said with a specific instance. I have the advantage of being a member of the Public Audit Committee. Mr Black and his colleagues will remember that we discussed the use of medicines in the national health service last week. The expenditure is about £222 million a year—a huge amount of money—and two issues came up. One was about generic versus branded medicines; the other was about the pilot scheme in Ayrshire and Arran for dispensing special—what is it called?

It was about prescribing and dispensing medicines in hospitals.

By chance, I had a meeting with representatives of NHS Lothian on Friday. I raised the matter with them, and I went through both of the issues. That was a coincidence, but it occurred to me that it might be useful for Audit Scotland to have some process, once a report is produced, for holding meetings with each of the boards concerned, perhaps a few months later, and interrogating them about what they have done and followed up on. The answers that I got from NHS Lothian indicated that the board is doing that follow-up. More than 80 per cent—nearly 90 per cent—of the medicines that it uses are generic rather than branded, and the board has a similar system to that of NHS Ayrshire and Arran.

Have you thought of setting up some systematic procedure for doing that with every board and incorporating that into your procedures?

The short answer is yes, we are thinking about that. We are implementing some systems and procedures as we speak, which will take us a significant way in that direction.

We have considered the management of medical prescribing in hospitals a couple of times now; we have also looked into prescribing by general practitioners a couple of times. The Public Audit Committee is well aware of that. Over the years, that has been one theme of work in which we have generally been able to identify achievable but challenging targets for the NHS, for example in moving from branded to generic drugs. We thought that tens of millions of pounds could be released for redeployment in the NHS, and that has been achieved—it has been one of our success stories. We are trying to learn from that experience.

We have decided—and we have been operating this for a little while now—that, for each major report that we do, we should attempt to include what we call self-assessment checklists for the bodies concerned. For example, as Lord Foulkes might recall, we had a discussion relating to the study into drugs and alcohol, which involved partnership working. At the back of that study is quite a full self-assessment checklist, and it would be reasonable to expect boards and their local authority and other partners to work through it. Issues are highlighted around people knowing the costs and impact of what they are doing.

The model that we have in mind involves being more specific than has perhaps been the case in the past about pulling out clear points for consideration and possible action by the audited bodies. That will allow the appointed auditors of each body to return after a certain period of time and check whether the issues have been dealt with seriously.

The next stage is to quantify some of the targets. The extent to which that is possible really depends on the subject that is under review.

Why am I not surprised that Lord Foulkes has raised the use of medicines? In a sense—I am not just saying this because I am sitting before the commission—the impact and the follow-through from some of our reports has increased immeasurably since we have been bringing them before the Public Audit Committee. It has raised their profile in a way that did not apply before.

Following our report on the use of medicines, I was disappointed that there had not been more progress in some areas, but I was pleased with progress in other areas. As the Auditor General said, we have done a lot of thinking about how to raise the profile of such reports. My health team has talked to the audit committee of every health board about them and has tried to engage non-executive board members in what the reports mean for improving services on the ground. We will continue to do that.

We have just completed a survey of all boards on the use that they make of our reports. Probably two thirds make very good use of them—they consider the action plans and carry out work on the back of that. We must now target the third of boards that do not make such good use of our reports. I hope that that will help. If we can connect with the local audit teams to ensure that they follow through, we have quite a prize to win.

I am encouraged by that. As you know, I am aware of the follow-up reports, but Barbara Hurst's point about the meetings with boards is new to me. The boards are very variable. NHS Lothian seems to be good—although perhaps I am biased—but our experience with Tayside NHS Board and the Western Isles NHS Board has not been quite so good in several areas. It would be useful if you could produce a note about how you follow up, not just in general or with health boards but individually and systematically with all public bodies. Mr Black said that you are considering that. I am not sure whether the convener agrees, but I think that it would be helpful to have a note about how that will work in practice.

Anything that illuminates practical examples of the follow-up work would be helpful. It would certainly be interesting to hear how your work applies to other organisations, and the specific example of the prescribing of medicines in the NHS is useful in illuminating that.

We are happy to assist the commission by providing information on that.

My question goes a little beyond the commission's remit and is stimulated by the thought about wider effects on public services. There will be several pressure points in the next few years. In my realm of justice, one issue will be the effectiveness of community service orders in reducing reoffending rates. By way of by-blow, I want to inquire whether Audit Scotland is considering that. Obviously, the details of the issue are more to do with local government than with central Government.

I ask Barbara Hurst to advise the commission on our work on justice.

I am happy to do so. We touched on community sentences in a review of the Scottish Prison Service, as those are the other side of the coin. Our system is that we have individuals who are responsible for monitoring particular policy areas and who make suggestions on what we should do. We are keeping a watching brief on community sentences. It is not currently in the programme but, if something blew up, we would respond—we try to build in enough flexibility to allow us to do that. We are keen to return to the matter because there is an issue about how partnerships function to make those sentences work in practice. The short answer is that we are not examining the issue at present, but it is on our radar.

I raise the issue against the background of the Criminal Justice and Licensing (Scotland) Bill and the replacement of short-term prison sentences. In a tight financial climate, the effectiveness of such orders will be crucial to our progress in that direction. I will leave that thought with you, without pressing you on it.

We have a study in the work programme on the summary justice and court system. We might be able to consider how to build into that study the issue that Robert Brown raises.

That would be helpful.

I have one or two detailed questions on the general trend in the budget. Mr Black has set out the net outlay required from the consolidated fund, but what are the gross figures for the changes in your spending?

Russell Frith will be able to help you with the detailed numbers. Forgive me, but I make the obvious point that the figure that is before the commission is an indicative planning figure, because we have only now started the budget exercise for the 2010-11 year. It is a planning figure that we will adjust, although it gives the commission a general indication of the order of magnitude that we are heading towards.

On where we are for the previous financial year, I know that one of the commission's concerns is about the levels of underspend that we have had in the past few years. I can confirm what the Auditor General said about the trend being such that our outturn for the year ending March 2009 will be a lot closer to our budget for the year than it has been in past years. If we strip out the amounts that are carried through from one year to another and the pensions effects, the in-year underspend in 2007-08 was about £1.8 million. Our management accounts, which are still subject to audit at the moment, indicate that the equivalent figure for this year is likely to be about £800,000.

That is not quite what I was after. I sought to find, against the background of our role to scrutinise the whole of Audit Scotland's expenditure, what you think the gross expenditure figure for the forthcoming year is likely to be, whether the percentage changes in that are similar to, or bigger or smaller than, the bit that we have to fund and what the reasons for that might be.

The answer to that is yes: the gross and net figures are moving pretty much in line with one another.

Have you found any particular areas that show significant variance from the norm in terms of what you expect to spend next year? Are there areas that we should look at in that respect?

I guess that the big unknown is still what we have to provide for pension costs. However, there are perhaps other issues, which Russell Frith might want to mention.

The pensions figure is becoming a bit clearer. We now have the actuary's formal valuation as at 31 March 2008, which is the triennial valuation. Based on the actuary's recommendations, we think that our total pension costs will go up by about £130,000 for 2010-11 compared with 2009-10.

Do any other areas indicate major variations from past trends?

I do not think so.

Currently, there are reduced interest rates, which we flagged up to the commission in the letter with our provisional budget estimate, and there is uncertainty about the direction of travel for public sector pay rates and so on. We are working through the impact of the inflation that we experience, because it occurs in different costs. Energy costs and fuel costs have gone up, costs for some things have gone down, and some things have no effect whatsoever because we have long-term arrangements and so on. I would say that the uncertainty at the moment over the direction of travel for public sector pay would be a variance, as would income from interest.

In terms of trend, but not for the forthcoming year, is it expected that there will be a reduction in the number of public sector bodies to be audited if the Government's programme for that goes through, and that there will be a move to a more risk-based approach to audit? Will those factors have an effect on the level of your budget requirement—its ups or downs?

I will pass over to Russell Frith for that.

The effects of the change in the number of public bodies are relatively marginal for us because many of the bodies that have so far been abolished, merged or whatever did not have separate accounts prepared and audited. However, some bodies—Communities Scotland, the Fisheries Research Services and the Scottish Fisheries Protection Agency—have been merged back into the Scottish Government, so we would expect to see a marginal reduction in the total from that.

It is pretty marginal in the overall scheme of things, though.

Yes.

My final point is on the capital figure, which I think you indicated as £306,000. What are its elements?

Most of that is planned information technology spend. On variation, we have found that IT costs have not fallen. Because of the exchange rate, some IT costs are either the same or increasing, which is against what one might expect in the market. The capital expenditure is part of our on-going IT refurbishment programme and will peak and trough. The total is coming down and should get lower, but it will then increase again when we hit the need to replace major systems such as laptops and desktop computers.

It sounds like capital spend is less than it has been in the past two or three years.

It is. We expect that capital spend will be less again in the following year, but it will then start to climb back up as our assets need to be replaced.

If there are no other questions, let me ask finally about the correspondence-handling pilot. Has that been completed and evaluated?

The correspondence work is a significant burden on us. As I have mentioned on previous occasions, it is not uncommon that complex, high-profile and sensitive issues emerge from correspondence—in fact, we are currently dealing with one such issue that has been in the media—but I have an assurance from Audit Scotland that we will be able to accommodate the cost of correspondence handling within our existing resources. Therefore, there will be no bid for new resources in that regard.

Thank you for all the evidence on agenda item 1. I suppose that I should acknowledge that Audit Scotland's work programme is a matter for the Public Audit Committee, so let me stress that commission members do not wish to stray into that committee's remit. However, as George Foulkes highlighted, any examples of Audit Scotland's work that illuminate the broader issues that we raise in our budget scrutiny are useful. We are interested more in information that illuminates those issues, so I stress that we do not wish to encroach on the remit of another committee.

Let me ask a question that has just struck me. When we approve the budget for Audit Scotland, where does the budget for the Accounts Commission come in? Where is that considered?

Let me ask Russell Frith to explain.

As members will know, the Accounts Commission is a non-departmental public body that is appointed by ministers. There is no direct parliamentary funding of the Accounts Commission. Formally, the Accounts Commission has no accounts at all, as it has no income and expenditure. All of its costs are contained within Audit Scotland's figures, which is why Audit Scotland's gross budget includes, for example, the costs of the commissioners.

The money for the Accounts Commission is taken from the charges on local authorities that are levied by Audit Scotland on the Accounts Commission's behalf. The Accounts Commission determines what the indicative audit charge on every council should be, which includes an overhead element for the Accounts Commission's costs. Audit Scotland receives that instruction from the Accounts Commission, levies the charge and takes the income into the Audit Scotland budget. In running the business, we are as careful as we can be to apportion costs related to local government work to the fees that are taken from local authorities and to relate the costs for everything else to the fees that are taken from NHS bodies, further education colleges and one or two other large public bodies. Of course, we also have the net resource requirement.

In a perfect world, every penny of what the Accounts Commission spends would be recovered from the fees that are charged to local authorities, but sometimes things do not work perfectly. Potentially, the accounts that we approve could indirectly contribute to the work of the Accounts Commission, whether through support from people in senior management or whatever.

An issue that has come up at the Public Audit Committee and has been touched on by this commission in some of our deliberations on the possible future structure of the audit function is that, when significant amounts of public money—that sometimes have a national implication—are spent by local government, there is no ability to have any external scrutiny of any significant failure that might occur other than by the local authority itself. I continue to worry that a gap in accountability exists because of that. We have had a number of serious problems in certain areas over the years and, although either the audit committee or this commission might be able to comment on matters of significant failure in health, further education colleges or wherever, when it comes to the delivery of major services such as education or transport there is nothing that anyone outside that local authority can say or do. I worry about that.

I imagine it will be open to members to try to influence the forthcoming public sector reform bill if they think that that is appropriate.

The commission will receive the final budget from Audit Scotland in September. We will give that full consideration before we report to Parliament, and it will also be considered at the Finance Committee.